Cyprus Mail

Barbs fly but state-backed loans get nod

In a fireworks-laden session, the House passed a law giving the state the nod to guarantee up to €1 billion in loans to businesses and self-employed persons stricken by the coronavirus-related restrictions.

As expected, opposition parties tinkered heavily with the government bill, and passed five amendments to it – which ruling Disy voted against, arguing the changes could make the new law largely unworkable and also risk being rejected by the European Commission.

Inevitably, the debate preceding the vote saw recriminations fly over which side had been responsible for the bill being delayed and being passed at literally the eleventh hour. Junior opposition party Diko dredged up an argument festering with the government throughout the week.

The House is to be dissolved ahead of May’s legislative elections.

The main government bill passed with 52 votes for, with two MPs abstaining.

Under the first amendment, companies and self-employed individuals eligible for the state-backed loans must not sack any staff for a period up to six months from the date of granting of the loan.

A second amendment re-distributed the loan amounts, earmarking €300m to very small businesses and self-employed persons, €550 million to small-to-medium-sized businesses, and €150 million to large corporates.

The original proposal provided for €300m to go to very small businesses and €700m to the rest without other conditions. The loan criteria relate to the number of staff and turnover.

A third amendment provides for the establishment of a committee to monitor the implementation of the law; it will comprise the accountant-general or the deputy accountant-general as the chair; a finance ministry functionary; two Central Bank functionaries; and the auditor-general or a representative of his, participating with observer status.

The auditor-general’s participation was a bone of contention for the government.

Under the fourth amendment, in the event a commercial bank denies a request for a loan, the applicant may take recourse with the monitoring committee and file a complaint.

And the fifth amendment affords the finance minister – who from time to time will issue decrees pertaining to the scheme – the ability to urge banks to suspend the payment of loan installments by borrowers for a period of 12 months after the start of the loan contract.

The scheme assigns the risk – 70 per cent for the state and 30 per cent for the banks – in the event a borrower defaults on the repayment.

Banks will grant the loans according to criteria – the loans will be equal to the sum of the employees’ salaries in a given company, or to 25 per cent of turnover during 2019.

The interest rate will be based on the European Central Bank base rate.

Total liquidity granted by the banks is expected to reach €1.4bn.

During the week, the government had sought to exert pressure on opposition parties to pass the bill, warning that otherwise they would take the blame for a cascade of bankruptcies.

Also on Thursday, parliament voted through a legislative proposal to freeze foreclosures on mortgaged properties until July 31 this year.

The suspension of foreclosures relates to a primary residence of a value of up to €500,000, as well to business premises for very small companies employing less than 10 people and with an annual turnover not exceeding €2 million.

Speaking on the House floor, Akel MP Giorgos Loukaides said the aim was to shield borrowers in distress, particularly during the circumstances brought about by the pandemic.

But it is still a temporary solution that does not resolve long-term problems faced by borrowers, he added.

Earlier in the week, the government withdrew a bill amending the courts law after opposition parties added provisions that changed the foreclosures framework, jeopardising the stability of the banking sector.

The finance ministry cautioned that ratings agencies, the ECB, and the IMF were clear on the dangers of the planned changes.

Opposition parties had warned that withdrawal of the courts bill would prompt them to table the proposals before plenum independently on Thursday.

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